European markets shake off Syriza win in Greece

HONG KONG - Agence France-Presse

The euro skidded to near an 11-year low and U.S. stock futures fell on Monday as Greece's Syriza party promised to roll back austerity measures after sweeping to victory. REUTERS Photo

The euro and European shares and bonds shook off worries yesterday over Greek election winner Syriza’s pledge to take on international lenders, a strong sign of confidence in the ECB’s new money-printing program.

Weakness in European shares lasted only for about two hours, although the main Athens index fell and Greek bond yields rose.

The euro was up 0.2 percent at $1.1230 after falling to a new 11-year low in Asian trade.

“The QE announced last week has gone some way to prop up the markets,” Accendo Markets senior trader Tom Robertson said, referring to the roughly 1 trillion euro bond-buying program the European Central Bank launched last week.

But he warned that investors would be on edge for as long as a Greek exit from the euro zone remains a risk.

In the United States, stock futures pointed to a weaker open in a week where the focus will be on the Federal Reserve meeting and the signals that come out about a potential rate hike later in the year.

Syriza’s demands for a debt restructuring have raised the prospect of a stand-off between Athens and other European leaders that might lead to a “Grexit” although financial markets were treating that as a marginal risk yesterday.

The potentially disastrous consequences of such a move for Greece and Europe were likely to force policymakers to find an agreement, analysts said.

Syriza leader Alexis Tsipras promised Greeks on Jan. 25 that the five years of austerity imposed under bailout programs worth 240 billion euros from the European Union and the International Monetary Fund were over.

He later struck a deal with the right-wing, anti-bailout Independent Greeks party to form a government.
Yields on bonds issued by lower-rated European countries such as Spain and Italy were a touch lower and near recent record lows. Portuguese 10-year yields, seen as the next in line to rise if there were any contagion from Greece, were down 7 basis points at 2.17 percent.

Greek markets did not share Europe’s upbeat mood.

Ten-year yields increased 41 basis points to 9.18 percent, while the main stock index fell 2 percent, with shares in banks such as Alpha Bank and Piraeus Bank down even more.

“The Greek result is a great paradox in the sense that we are told the Greek people are voting against austerity measures but wish to remain within the eurozone,” said Alan Wilde, global head of fixed income at Baring Asset Management.

Unlike at the height of the eurozone’s debt crisis in 2011-12, European banks have limited exposure to Greece, while policymakers have put in place safety nets to deal with renewed contagion.

Europe showed a willingness to give Athens more time to pay its debts, but little sign that it would yield to a new Greek government’s demands for debt forgiveness. European Union leaders and policymakers responded to Greek anti-bailout party Syriza’s election victory with warnings that a debt reduction for Greece would be against eurozone rules and would send the wrong message to other members of the single currency.